A Big Bonus Is Scheduled For Ex-Chief Of Kmart

By CONSTANCE L. HAYS

Published: January 23, 2003

Kmart's former chief executive, who stepped down abruptly Sunday, will receive nearly $4 million as a bonus for leading the company during its bankruptcy, according to documents filed with the Securities and Exchange Commission late Tuesday.

The executive, James B. Adamson, who was on the job for 10 months, will be paid $3.6 million within 10 days of Kmart's emergence from bankruptcy, which the company says will take place by April 30. He remains a nonexecutive chairman of Kmart's board.

But the agreement stipulates that Mr. Adamson, a six-year veteran of Kmart's board, must step down as a director once the bankruptcy comes to an end. While many of the directors are expected to be replaced, his departure signals that he is not a favorite of the creditors and other stakeholders now making many of the decisions about Kmart's future. That group includes banks and manufacturers as well as investors like Edward S. Lampert, who runs a Connecticut-based hedge fund, and Ronald W. Burkle, a California investor who made a fortune buying and selling supermarket chains and bought a large stake in Kmart not long before it sought bankruptcy protection.

Kmart sought Chapter 11 bankruptcy protection a year ago after slowing sales and an unsuccessful price war with Wal-Mart Stores badly eroded its profits. It has struggled to reverse declining sales ever since. In the five-week period ended Jan. 1, the company said it managed to turn a slim profit despite sales that fell 5.7 percent compared with a similar period a year earlier.

Mr. Adamson, 54, became chief executive last March, succeeding Charles C. Conaway, who had been in the job for two years. Mr. Adamson's successor as chief executive, Julian C. Day, will be paid $1 million a year in salary, a third less than Mr. Adamson received. Mr. Day, 50, will receive an annual bonus of up to four times his salary, depending on how profitable Kmart is under his leadership. He will also be paid $1 million if the company emerges from bankruptcy, his employment agreement states.

The company praised Mr. Adamson's contributions to the anticipated turnaround, crediting him with putting Kmart ''on the road to financial recovery.'' Mr. Adamson said in a statement that he had ''great confidence'' in the ability of Mr. Day to turn Kmart into ''a world class competitor in the retail landscape.''

Kmart executives have said they will file a five-year business plan with the Chicago judge overseeing their bankruptcy case by tomorrow. In addition, the company will file other documents disclosing its performance and the results of a yearlong investigation into the management of Kmart by departed executives, including Mr. Conaway.

The plan, which includes a trust for creditors, specifies that current shareholders will receive nothing for their shares. The trust would be able to file lawsuits stemming from Kmart's investigation, as well as from investigations by the Securities and Exchange Commission and the Department of Justice that are under way.